Archive for January, 2010

What Is MAP and Why Manufacturers Need To Enforce It

What Is MAP?

MAP stands for minimum advertised price.  Essentially it’s something that manufacturers can use to enforce their sellers to not advertise their product for a price lower than X amount of dollars.  For example if I am a manufacturer that makes a cell phone, and I have three different stores that sell it.  I can set MAP pricing to $199.99, meaning none of those stores can publicly advertise the phone for less than $199.99.   The Supreme Court has said that utilizing a MAP is legal and does not represent a violation of U.S. antitrust statutes.

How Does MAP Benefit Both Parties?

As long as MAP is strictly enforced, it can be extremely beneficial in my opinion for both the manufacturer and seller.  Lets look at some of the reasons:

  • By maintaining a higher price point, the product retains its value, which in turn is better for the brand image behind it.
  • Enforcing a MAP can allow some of the small business players to compete with the big guys.  For example, if I have a widget that is being sold under a MAP at Mom & Pop Shop as well as Wal Mart…we both know that Wal Mart has the upper hand in terms of purchasing quantity.  Generally increasing quantity purchase means they can also get a lower price, and then use that buying power to lower the retail price, therefore not giving Mom & Pop Shop a chance to even touch the pricing.  If MAP is enforced, both Mom & Pop Shop as well as Wal Mart would sell for the same price, even if Wal Mart may be paying less per widget.  This gives everybody a chance to compete, but as a benefit to Wal Mart for buying more, they make more profit per sale.
  • Price wars will not occur between your sellers, which drives pricing down.  We’ve seen this first-hand, especially in marketplaces like eBay.  10 different sellers on eBay trying to sell a product can turn a profit that was once a healthy margin into literally pennies on the sale.  Sure, this is great for the consumer in terms of price, but imagine the customer service and company behind a sale where they make practically nothing and are hoping for sheer volume just to make a few bucks.  More than likely you are going to get treated like shit, or there will be other negative things like aggressive upsells, selling your information, etc.  Remember, everything comes at a cost.
  • By making all sellers follow the same retail pricing, sellers will need to come up with more creative ways of promoting and selling a product aside from simply marking the price down.  With the higher margins that everybody can make on the product, it will allow for budgets to do such things like offer better customer service.  This again can become a significant method of positive brand image reinforcement for the manufacturer that just wouldn’t happen any other way.
  • By maintaining a MAP, and ensuring their distributors are holding their resellers to a MAP policy, it allows room for wholesale pricing to work.  I can’t tell you how many times I’ve seen a wholesale price, while I could literally find a seller selling for less than that.  The whole business structure behind reselling and wholesale just doesn’t work if pricing isn’t properly enforced.

As I mentioned above, all of the benefits can only be had if the manufacturer (and wholesale distributors) were to ensure that the MAP policy was strictly enforced.  It takes just one seller adjusting their price by 5 cents with no reprecautions from the manufacturer to mess things up.  It’s vital for the manufacturer to not play “favorites” with their bigger sellers.  Manufacturers as a penalty should threaten to freeze sales for a seller if it is found violating MAP, or even go as far as taking legal action against the seller.

Other Concerns and Problems and Notes

There are certain workarounds and situations that should be of concern.

  • It’s much easier for a distributor or wholesaler to not adhere to MAP policy for their resellers.  For example if I am the manufacturer, I sell to a wholesaler, who in turn sells to a store.  As a manufacturer you would need to be adamant about ensuring your distributors are adhering to policy for the stores they are reselling to.  If you find a store selling below MAP, find out who the distributor is if it’s not direct, and threaten the distributor.
  • There are workarounds for getting around an advertised price.  For example I’m sure you’ve seen sites like Amazon who do things like “Click here to see the price in your shopping cart”.  This is a way for sellers to somewhat get around pricing.
  • If you look at it from the manufacturer standpoint, they make the same amount of money regardless of whether or not the seller is making high margins, or pennies on the dollar…they are still buying the product for the same price from you.  So it’s easy for them to not care as long as somebody is buying the product.  They should consider the different factors up-front and if they want to set a MAP policy, be sure to adhere to it going forward.

Your Thoughts & Opinions

I’d like to openly ask both store owners as well as manufacturers to respond in the comments (feel free to do so anonymously) about what your thoughts and experiences are.  Am I out of line here?  I can see that this may be less concern in a brick-n-mortar outlet, but online I believe it’s extremely crucial.  Are there other advantages and disadvantages I haven’t thought of?

No Longer Working For The Man…Or Am I?

Working For The Man

As of January 1st, 2010 I have left the company I worked for to do my business ventures full-time. I’ve generally tried to be pretty DL about my regular job, but now that I’m gone, it’s full disclosure.  I had been working for Aol as a project manager since I graduated college (I left the company with about 4.5 years of experience under my belt).  When I started there, their headquarters were located here in Northern VA.  Being that I had experience in online advertising, I was a perfect fit for a position out of school within the technical online advertising part of the company.  I won’t get into my job there, but I will say that I loved working for them.  I really enjoyed the people and the atmosphere there.  Sure, there was a lot of mis-management on a higher level, and sure there were bad acquisitions (*cough* Bebo *cough*), but it was a great place to work.  Now with Tim Armstrong (formerly of Google) holding the reigns as CEO, I think they have a better chance than ever to do something worthy.  I took every opportunity I could to see and listen to Tim in person, and I believe he’s doing a great job.  I really appreciate the way that he finds it important to communicate with everybody in the company, tries to get a full understanding of all the legs, and keeps everybody in the loop.

There are two main things I want to point out before I get off this subject.  The first is that Aol, while as uncool as many of you initially believe, actually does a lot of cool things and owns a lot of cool sites that you may have never even realized.  For example some of my absolute favorite websites on the internet are owned by Aol, and have been for years…like Autoblog and Engadget.  There’s tons of others like Moviefone, TUAW, Asylum, Wallet Pop, Mapquest, AIM, TMZ (up until the split in December 2009) etc.  You can see the full list here.

The second, is that Aol is a different business than it was in the 90′s.  Their core business is no longer dialup as everybody tends to believe, but instead they are in the business of advertising and content generation…competing with companies like Yahoo! and MSN.  The thing to note though is that the majority of the revenue coming in right now, and what’s keeping the company alive, is from the ever-dwindling dial-up subscribers.  Believe it or not, there were 6 million when I left last month.  Do the math on how much cash a high-margin business brings in on 6 million people paying a monthly fee.  The downside to this is that the company valuation is based on this number, which has been and will continue to slide as dial-up subscribers cancel their service and move to free accounts.  The money will eventually dry up.  The web  part of the business right now is a loser.  That’s why Aol has this time now to replace that money with the new money.  It may not be comparable (and will come at the cost of much more downsizing), but it can be a profitable business.  Though, my suggestion is to wait it out if considering to purchase stock in the company.  The ISP and advertising revenue needs to level with each other first I believe.

Still Working For The Man

Now that I’ve left Aol, I’m still working for the man…me that is!  I wrote a post on this site back on December 10th of 2007 talking about launching a site named Carbon Fiber Gear.  It’s interesting looking back at this post, where I analyzed three possible revenue models for the site, and built it up originally as an experiment in affiliate marketing.  Looking at the site now, I’ve actually implemented all three revenue streams, but have a larger focus on blogging and eCommerce, and less so on affiliate marketing as I have a higher interest in maintaining my readers and customers.

So fast forward two years later, the business has come far enough along to be able to support me full-time (at least I hope so!).  It’s not just Carbon Fiber Gear, there are a few other projects, and they are all done under the dpitMedia umbrella.  It has especially been a crazy year, basically working full-time at Aol, then coming home and working until 4 in the morning sometimes on my personal projects.  Through a lot of dedication and work, I was able to see a real potential in the business, and started to think about doing it full-time.  It’s a scary decision.  I had a great a job, with great benefits, I just bought a house…that’s a lot to ponder.  If you think about it though, we’ll all almost never be in the perfect place to run a company full-time, there will always be something.

Anyway, I started to think about potentially leaving in early 2010, but wasn’t 100% sure.  Then with Aol spinning off of Time Warner, it came with an announcement that the company would have to layoff 2,500 employees, or about 30% of the workforce.  They did an interesting method though, they offered voluntary layoffs for those that wanted to leave before 2010 started, and then will do another round of involuntary layoffs in Q1 to get the numbers they need.  The interesting thing about it though was that they offered larger severance packages to those who took the voluntary layoff.  It was sort of a sign for me.  I had really though about leaving, and now I was going to be paid to leave.  I had to take it and see what I could do.

Over the past year, I haven’t paid myself anything through my business, so I had built up a fairly nice safety net of funds…then I had some personal savings, and now I have a few extra months of salary coming in from AOL for a severance package.  Plus, it’s not like I’m going from my salary to $0…my business already brings in money.

With the helpful advice of family and friends, I decided to take the package and do dpitMedia full-time.  Now I sit here in bed with my laptop typing this after my first full-day at work for myself.  The first day of the rest of my life.  If I can replace my company-life with the lifestyle of the work I do for my company, even just making the same amount of money, I will consider myself successful.  Not to say that I don’t work as much (in fact I would say I work much more), but I really don’t consider it work…I truly have a passion for what I’m doing, and I love it.  And that makes a world of a difference.  Not to mention I have a much higher chance of being very successful through my business than by working for a company.

As it was interesting looking back two years at a blog post I made on here about a little affiliate experiment I was doing, I hope it to be just as interesting looking back two years at this post about a little company I had started.

I’d like to thank my mom and aunt for the support they provided.  My mom especially always supports my decisions, regardless of how weary she is about it.  I’d also like to thank my amazing girlfriend Allison for putting up with my late nights, for all my crazy thoughts and ideas, for all the advice she gives, and for all of the help she provides.  Lastly, I’d like to thank my Dad for giving me somebody to prove that I will turn this company into something big.  One last thanks goes out to Adam McFarland, who’s blog about entrepreneurs, and his business have truly been inspirational and have lead to things that have really helped me out.  Little things like learning how his business setup their warehouse, or opening the doors to Stanford’s Entrepreneurial Thought Leaders podcasts have made bigger differences than I’m sure he realizes.